Research

I analyze how vertical integration between insurers and providers affects compliance with Medical Loss Ratio regulation and consumer welfare in the U.S. health insurance market, using a rich dataset from 2018 to 2023. Reduced-form evidence suggests that vertical integration raises the medical loss ratios of subsidiary insurers and enables previously non-compliant insurers to achieve regulatory compliance. Motivated by these reduced-form results, I propose and estimate a model of insurer–provider bargaining and find that removing vertical integration leads to lower negotiated prices and premiums, improving consumer welfare. In contrast, stricter regulations raise both prices and total spending. Therefore, vertical integration can weaken the effectiveness of Medical Loss Ratio regulation and reduce its intended consumer welfare.

This paper proposes and estimates a structural model to quantify the value of flexibility in dynamic contracts with ex post uncertainty. A buyer repeatedly negotiates over the contractual quantity and payment with a supplier. The buyer benefits from an ex post adjustment such as partially returning the purchased quantity in the face of negative shocks. Such adjustment worsens the buyer’s reputation of reliability, reducing her payoff in future contracts. Thus, the optimal decision on ex post adjustment strikes a balance between the current benefit from adjustment and the reduction in future payoff. Using a proprietary data set of contracts on food supply from a restaurant chain, we find that the flexibility in adjusting to ex post uncertainty increases the buyer’s payoff by around 15% on average, compared to the counterfactual rigid contracts. In addition, most of the value of flexibility originates from protecting the buyer from the downside risk of uncertainty.

This paper examines the effects of fiscal decentralization on the default risk of Chinese local government debts based on data from both urban construction investment bonds and local government bonds. The empirical evidence indicates that while fiscal revenue decentralization tends to mitigate the default risk of local government debts, fiscal expenditure decentralization increases it. Four policy measures, namely, fiscal transparency, hard budget constraints, debt quotas, and local officials’ ability to manage debt are also introduced to investigate how they affect the influence of fiscal decentralization on Chinese local government debt risk.